Emerging markets (EM) face their fair share of headwinds given rising global inflation paired with a strong dollar. However, if investors are willing to take on the risk, they could offer supercharged fixed income options.
It’s easy to see why an investor might walk on eggshells around EM assets. They were one of the hardest-hit spaces at the height of the pandemic as a number of EM economies were crippled.
“Emerging market currencies have fallen by their most since the early stages of the pandemic as a ‘toxic’ mix of rising US interest rates and slowing Chinese growth dims the outlook for developing economies around the world,” a Financial Times report noted.
“An MSCI gauge of emerging market currencies has tumbled by more than 4 per cent since early April as the Federal Reserve embarks on an aggressive tightening of monetary policy in a bid to rein in high inflation, boosting the US dollar while battering stocks and bonds,” the report added. “Draconian coronavirus lockdowns in China have piled on further pressure by threatening a crucial source of demand for emerging economies.”
Supercharging Dividends With Emerging Markets
Fixed income investors willing to accept the higher risk in order to extract the most yield will want to give emerging markets a shot. That can be had with funds like the Global X MSCI SuperDividend Emerging Markets ETF (SDEM).
The Global X MSCI SuperDividend® Emerging Markets ETF (SDEM) seeks to provide investment results that correspond generally to the price and yield performance of the MSCI Emerging Markets Top 50 Dividend Index. The fund invests in 50 of the highest dividend-yielding equities in the Emerging Markets.
The fund had a 30-day SEC yield of 9.69% as of May 20, giving investors a fixed income option that could outpace inflation. The fund carries an expense ratio of 0.67%.
Overall, SDEM offers investors:
- High income potential: SDEM accesses 50 of the highest-yielding stocks in emerging markets, potentially increasing a portfolio’s yield.
- Monthly distributions: SDEM has made monthly distributions for seven years running.
- Value with growth: Investing in high dividend-yielding securities in the emerging market space combines a value-oriented investment approach with exposure to markets that are expected to grow at a faster pace than developed markets.
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